Country Risk Service Italy 4th Quarter

Italy's sovereign risk score worsens marginally, from 39 to 40, but remains at the less risky end of the BB band. This reflects high public debt and weak economic growth, which has constrained revenue and curtailed plans to cut spending. The Economist Intelligence Unit expects an average budget deficit of 3% of GDP on average in 2019-20, keeping the public debt above 130% of GDP.

The score is unchanged at 26, and the rating remains at A. An improved economic and institutional outlook for the euro zone has increased the bloc's resilience to political risk and external shocks, and structural support for the currency comes from a large regional current-account surplus. We expect the euro to average US$1.20:EUR1 in 2019-20, after an estimated US$1.18:EUR1 in 2018.

Banking risk remains at the top end of the BB band, with a marginal improvement in the score, to 39. There has been progress in dealing with the sector's weakness, but non-performing loans remain elevated, undermining already weak profitability, which leaves the sector vulnerable to a renewed loss of investor confidence.